Gold prices pulled back overnight, as the Federal Reserve announced the winding up of its current round of Quantitative Easing. Whilst this announcement was expected, the accompanying policy statement was more ‘hawkish’ than the market expected, and was a major reason driving the gold price as low as USD $1207oz.

Silver was also affected, and is currently sitting just above USD $17oz.

For Australian dollar investors, this pullback has brought gold back below the AUD $1400 level, maintaining the relatively tight range it’s been in since April of this year.

Heading to Germany

Next week, I am heading to Munich, to speak at the International Precious Metals and Commodities show. It’s going to be a fantastic program, with the headline act no doubt being Jurgen Stark, whose been a board member of the Deutsche Bundesbank, and chief economist of the European Central Bank.

For those interested – you can find out more about the show here.

The title of my talk (I’ll share the slides after the event) is “Gold – Australia’s opportunity of a lifetime”

I’ll be running through a number of topics, including the following

• The reasons I started buying gold (and continue to do so)

• A look at the Australian economy and risks to the “lucky country” ahead

• Defining global economic recovery and why we aren’t seeing it

• A discussion on whether or not gold has bottomed

• Australia’s #HeartofGold

• The golden opportunity for Australian investors and for the nation

Starting with the reasons I began buying gold over 10 years ago, they included the fact that it was cheap, and because I thought financial assets were overpriced, and economic risk was under appreciated.

I also saw it as an easy way to benefit from the rise of China and India, who have come to completely dominate global physical gold demand, providing pro-cyclical consumer demand.

For anyone who doubts that, this chart from the World Gold Councils recently updated Investment Commentary, Looking into Q4 2014 report, should prove instructive, highlighting how tightly correlated increased gold demand is with rising per capita incomes in the worlds two most populous nations.

Finally – one of the simpler reasons to buy gold is very simply that time is on my side (and on the side of any gold investor). Whilst the price one must pay for an ounce of gold changes on a daily basis, no asset endures like gold does, something Simon Black from Sovereign Man covered in his latest missive, where he discussed the staying power of gold through the story of Leonardo Da Vinci.

Looking at all of the reasons I first started buying over a decade ago, and the only thing that has changed is that gold is no longer quite as cheap as it was back in 2003.

There is no doubt the easy money has been made in this secular precious metal bull market already, but the big money is still ahead of us.

Moving on, I’ll be looking at the risks we face in Australia going forward – focusing on the end of Phase I and II of the mining boom, Australia’s record levels of private debt, and the financialization of our economy which has seen banking and real estate come to dominate the nation.

When it comes to the global economic recovery, whilst there is the odd positive development, there is nothing to indicate we are back on a sustainable path. To believe this would be the case, one would need to see

• A permanent end to all central bank debt monetization

• A normalization of interest rates

• Structural reform of the unaffordable welfare state

• Balanced budgets for major developed markets

To believe otherwise is to believe that one can spend more than one earns forever, and that printing money can continue indefinitely, without destroying eventually destroying faith (and the value) of a currency.

If one were to walk into a bar and drink 6 shots of hard liquor – it might take 30 minutes to an hour before they start to feel the negative effects, and before its obvious to the rest of the patrons that you’re drunk. Just because we haven’t seen elevated levels of official consumer price inflation, don’t be too soon to write it off, especially with the Japanese likely to ramp up their QE efforts, soon to be re-joined by the Europeans.

As to whether or not Gold has bottomed, that is a subject I’ve discussed in detail the last few weeks, and you can get more information on that here.

Australia’s Golden Opportunity

Finally, ill be focusing on Australia’s Golden Opportunity, and what gold offers both individual investors like yourselves in the decade ahead, as well as what gold offers Australia as a country itself.

For those of you, who like me continue to hold and invest more in both gold and silver, physical precious metals will continue to provide

• An opportunity for outsized gains in a difficult market environment

• A hedge against a potentially significant fall in the Australian Dollar

• A way to benefit from the rise of India and China as discussed earlier

• The easiest & most liquid way of protecting wealth through GFC Phase II

• A way to balance out overall portfolio volatility

For the nation itself, Gold really can help keep Australia keep its moniker as the “Lucky Country”.

It can do this, for very simply, Australia despite the problems I see with the domestic economy, still has a lot going for it. We are after all a developed market nation with a strong (relatively speaking at least) rule of law, and are one of the few AAA rated sovereigns left on the planet.

We’re also still broadly seen as global ‘good guy’ – most foreigners like Australians and Australia itself, not something all nations can lay claim too.

Finally, we have this enormous advantage of essentially being a western, or European nation that just happens to be located in Asia.

With that in mind, our biggest opportunity in the coming decade and beyond lies in exporting not just raw commodities, but financial, wealth management and banking services into Asia.

And despite some of the distortions an overly financialized economy can cause domestically, Australia has plenty to offer in this field, with an enormous and well developed superannuation pool.

We also happen to be the world’s second largest gold miner – and as per the image above from the World Gold Council, there is a voracious appetite for physical gold in China, our biggest export market.

We also know that the Chinese see gold as an investment and as a fantastic vehicle for building up savings and storing wealth, something you can get a good feel for by simply scanning this web link, highlighting 10 different gold related savings, trading and wealth management tools ICBC bank offers its clients.

One need not be a genius to connect the dots here – the Chinese do lots of business in Australia, love gold, and see it as key part of sound wealth management and banking.

Australia produces lots of gold, and wants to build its banking, financial and wealth management relationships with China, and Asia in general.

The first bank in Australia that acknowledges gold for what it really is, a sound savings option, and an investment asset that deserves a place in a properly balanced portfolio – will be placed to capitalize on these opportunities with our neighbor to the north.

Until next week

Disclaimer

This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness. This report was produced in conjunction with ABC Bullion NSW.